Housing authority was selling properties in Las Cruces to investors instead of needy people

A supposed affordable housing development in Las Cruces that wasn’t benefiting low-income people was among the final discoveries before the resignation earlier this month of Vincent “Smiley” Gallegos as Region III Housing Authority director.

Properties the housing authority planned to develop in Las Cruces were being sold to an investor instead of needy people, the State Investment Council found. That is “beyond the scope of authority of the New Mexico Regional Housing Law” and violates the terms of the housing authority’s bonds, according to a July 6 letter from State Investment Council Lawyer Bryan Otero to the housing authority’s corporations.

Gallegos’ resignation is part of a larger scandal that has left the state’s regional housing authorities in shambles. The Region III authority, based in Albuquerque, and the Region VII authority, based in Las Cruces, have been devastated by the problems.

During its investigation of the housing authorities, the investment council discovered a 33-lot development near Oñate High School in Las Cruces. The Region III authority and its construction corporation, Housing Enterprises, Inc., were pre-selling lots in the subdivision to Capital Region III, LLC, a private company whose principal is developer Hank Harenberg, the letter states.

“Clearly, Mr. Harenberg would not qualify as a ‘person of low income,’” the letter states. “… We understand… that other, similar projects are contemplated or underway in Grants, Gallup and Farmington.”

The allegation that Gallegos was involved in selling homes to investors was first made public several months ago by Region VII Board Member Frances Williams.

The investment council requested that the housing authority immediately quit the project in Las Cruces and terminate the purchase agreement with Capital Region III, LLC, “as that agreement violates the Act and the Indenture and is therefore invalid as a matter of law.”

Region III recently defaulted on $5 million in bond payments it owes the state. If bonds purchased by the state and now in default paid for homes sold to private investors, anti-donation clause questions should also be raised.

The problems with the housing authorities are so vast that the governor’s office has said they might be irreparable. It has recommended the creation of a government-oversight office for the quasi-state agencies. The housing authorities are governed by boards appointed by the governor but, in theory, operate through the sales of bonds and proceeds from home sales, so no tax dollars are used.

Unless they default on bonds.

Following his Aug. 1 resignation as Region III director, Gallegos was replaced temporarily by Lawrence Rael, executive director of the Mid-Region Council of Governments. Emma Johnson Ortiz resigned earlier this year as Region VII director, but not before the Region VII authority built up a debt of several hundred thousand dollars while doing little about the housing situation.

There were also new revelations this weekend about problems in Albuquerque. According to a Saturday article in the Albuquerque Journal, Region III sold homes to two employees and a board member, and loaned money to a private company headed by Gallegos. Those were among the preliminary findings of the state investment council review.

The authority also “wrongly used bond money to finance salaries, to purchase vehicles and for office expenses, and it routinely took out bank loans on properties it was supposed to purchase with bond money,” the Journal article states.

One of the employees who purchased a home from the authority earns more than $46,000 per year, and the other earns more than $51,000 per year, the Journal reported. Another home was sold to Region III Board Member Eugene Hurtado, who was an investigator with the New Mexico Racing Commission. The governor’s office asked for Hurtado to resign both positions last week, and he did.

The authority also apparently loaned money to Gallegos’ private construction company, VSG Enterprises Inc., the Journal reported.

Gallegos, a former Democratic state legislator from Clovis, was paid $158,308 by the housing authority corporations. In his resignation letter, he said he was proud to have helped establish the organizations, which he said provided homes to needy families.

“It is obvious by the actions of the (Richardson) administration and the State Investment Council that the intent is not to go forward with continued delivery of affordable homes,” Gallegos wrote, according to the Journal.

According to the State Investment Council review, there are other possible improprieties, the Journal reported.

• The money received from buyers of 40 properties wasn’t used to pay off bonds.

• The authority withdrew bond money to buy five properties it already owned.

• The authority withdrew $880,000 to buy 16 properties, but paid $280,000 for the properties.

The question, then, is, where did the money go? The investment council’s final report is due out soon.